Is The Next Domino To Fall.... Canada?

While two short months ago, "nobody" had any idea that Italy's banks were on the verge of insolvency, despite that the information was staring them in the face (or was being explicitly cautioned at by Zero Hedge days before Italian CDS blew out and Intesa became the whipping boy of the evil shorts), by now this is common knowledge and is the direct reason for why the FTSE MIB has two choices on a daily basis: break... or halt constituent stocks indefinitely. That this weakness is now spreading to France and other European countries is also all too clear. After all, if one were to be told that a bank has a Tangible Common Equity ratio of under 2%, the logical response would be that said bank is a goner. Yet both Credit Agricole and Deutsche Bank are precisely there (1.41% and 1.92% respectively), and both happen to have total "assets" which amount to roughly the size of their host country GDPs, ergo why Europe can not allow its insolvent banks to face reality or the world would end (at least in the immortal stuttered words of one Hank Paulson). So yes, we know that both French and soon German CDS will be far, far wider as the idiotic market finally grasps what we have been saying for two years: that you can't have your cake and eat it, or said otherwise, that when you onboard corporate risk to the sovereign, someone has to pay the piper. Yet there is one place where that has not happened so far; there is one place that has been very much insulated from the whipping of the market, and one place where banks are potentially in just as bad a shape as anywhere else in Europe. That place is.... Canada.

As the chart below shows, which is a ranking of global banks by tangible common equity, lowest first, of the banks with a TCE ratio of under ~4% a whopping 30% are those situated in Canada, the same place where nobody thinks anything can go wrong, and which has been completely spared from the retribution of the bond vigilantes. Something tells us Canadian sovereign CDS, not to mention Canadian bank CDS, are both about to go quite a bit wider...

I believe that US Treasury has as their target a TCE/RWA of 4% (and if I am not mistaken that ratio is the standard currently in use when discussing TCE in the context of evaluating a banks capital adequacy) - some further explanation of the chart in Tyler`s post would be of value (I`m guessing it`s TCE/TA)

I'd really like to understand this information, as I have money in a ScotiaBank drip and this is the first I've heard of Canadian banks being risky. I know that CIBC is the cowboys of Canada, but even CIBC is pretty well conservative when compared with other countries.

read the above PDF and make up your own mind - Tyler tossed out a metric, which is great but there are manifold metrics that measure the health of a financial institution so it would be of value if Tyler could perhaps provide some context and background on the TCE metric he chose to use vs the widely used TCE/RWA, which the Canadian banks score very well on.

Wtf? This is a joke article. Definitely not by 'Tyler' TD but by a newbie intern probably.

And im not even biased towards Canadian banks.

How about you look at their (core) T1 ratios, their NPLs/Loans, RoRWA, Loan loss reserves, etc etc i could go on. Bar none, the Cad banks are the safest in the world. Add in some Scandinavia though i havent personally done my DD there just have been told they are decent as well

How about exposured to peripheral sovs on their banking book? Even RBC CM which is the largest CAD bank in the CM space, they have virtually zero exposure to Greece and the other shit sovs. The large US bulge banks and of course every single large EU bank is taking haircuts in the area of 15-30% on their banking book. Disastrous for their equity..

Finally, there is no CAD sov CDS. Definitely proofread the stuff posted by your other members, Tyler.

Thanks jic - many in Canada think we are somehow "special" and "different". No we aren't. Today I had a discussion with friends about this issue. As usual, it ended with a "We are not US! We are not Europe!" diatribe.

You can't compare Canada to anything in US or Europe now - and that includes cell phone plans LOL! It always ends with "We have a stronger financial system than the US or Europe." Or some other nonsense.

Just the other day, there was an interesting article in the Ottawa Citizen about high tech in the Ottawa area. For those familiar with Ottawa - it used to be known as Silicon Valley North and was the high tech centre of Canada. Not any more:

"The fact that Shopify set up here is very much an accident. Lütke followed his girlfriend, now wife, here. Chief technology officer Cody Fauser moved to Ottawa from B.C. because his wife got a job with the government. Not only that, the city would have lost this startup to California had Shopify not been so successful early on that moving became problematic.

"I always thought of Shopify as this San Francisco company that took a wrong turn and ended up in Ottawa," says Lütke. Even now, for two weeks every quarter, Lütke travels to California's Silicon Valley to "recharge my battery of thinking big."

However, whenever I tell people here in Ottawa I'm thinking about moving back to CA, there's always the inevitable "OMG why would you want to move to California. It's sooo awesome here." Well, if it's so awesome here - where's our Google? Facebook? Apple? Intel? RIM is cratering right now. Nortel already bit the dust.

One of my friends from South Africa said once at dinner - why wouldn't someone in high tech want to work in Silicon Valley? Immediately the whole dinner table started complaining about California. Inevitably the discussion became about the California economy! Nobody wanted to even contemplate the fact that CA might be better for high tech than Canada.

For all intents and purposes, Canada's Big 5 are the banking system in Canada. When TARP occurred, they were bailed out at the same time in a budget line item that the Canadian public was not aware of for several months. The Toronto Star did an investigation and found the $500 billion in funds that were budgeted to the banks.

OK. Let me see if I get this right..... the American tax payer via its Pimp, the Fed, bailed out Canada as well as Europe while the MSM told everybody (and maybe the dim witted President & VP too) that all the money was going to shovel ready BS. Did I get that right or did I miss something?

sub·ter·fuge

noun an artifice or expedientused to evade a rule, escape a consequence, hide something, etc.

It IS laughable and hardly news. Anyone paying attention merely has to check out the derivatives exposure of our Canadian banks (Canadian Imperial Bank Of Commerce, TD Canada Trust, Bank of Montreal, Royal Bank of Canada, et al). Just Google 'derivatives exposure canadian banks'.

Um, its from 2009. Taking the first metric posted there which is ever important T1 leverage, its as at July31 09. All banks in the world were heavily under their targets at that point! Currently if i were to average the CAD banks itd be around 9% Tier 1 lev... take SocGen this week and theyre at about 6%, BAC might be trying to boost it a bit with their asset sales.

RobotTrader used to post nice pics of scantily clad wimmin but not lately. Must have had privileges revoked. Without that he was out of ammo. Leo used to post videos of stupid Europeans vacationing on Greek islands getting drunk -- went on hour after boring hour. They're gone? So what. Waste of bandwidth.

Robo is a troll that hides when market is not going his way. I am long FAS @ 12.61. It does not matter to me which way it goes. I will not critique others on their forecasts. Robo constantly bashed on the contributors while posting 15 min charts after huge moves. Fock him and his bank rally that I am betting with stops.

---"it seemed each knew quite well what was going down." Wow. that's amazing. I guess you're one of those people who learned how to read, but it didn't do any good. It would be very, very, difficult to be wronger than Leo, and for all the wrong reasons. Robo Trader was a bullshit artist.